Daily Debrief: Axe starts falling on Web 2.0

October 17, 2008

Transcript

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>> Charlie: Until recently tech start-ups have more or less navigated through the sholes but the economic squall that's been buffing the rest
of the economy is starting to win its way through the web 2.0 world. Welcome to the CNET News Daily Debrief, I'm Charlie Cooper here
with my colleague from Webware, Rave Needleman [assumed spelling]. Rave today we learned that Pandora let go of about 20 people, earlier in the week
[inaudible] 40% layoffs, Zivity, Tesla, why now?
>> Rave: Well, the economy's tough and everybody is either reacting to it, ya know, hearing from their customers that they're gonna
be cut-backs, or they're being proactive, they're listening to the doom and gloom from their funders or their boards saying, cut now
before you have to cut later and they're being proactive in saying, we think it's gonna be bad let's, ya know, tighten our belts now
while we still can stay afloat by doing so.
>> Charlie: And speaking of doom and gloom there was the now famous memo from [inaudible] Capital to its companies urging them to stay
lean and mean, hunker down until all of this passes. In baseball terms, 'cause everything I reduce to baseball, where are we, early
innings, middle innings, definitely not extra innings?
>> Rave: Well, that's a -- no extra innings yet. In the game of muttering through this down turn, recession, or whatever it becomes
I think we're pretty early on, very early in the game, so you want strategies that is going to, ya know, get you through the rest of the
game and not injure all your players as you go.
>> Charlie: Let me take the glass half full perspective. We went through this; the industry went through this back after the bubble
burst 2000, 2001, 2002, with that experience under their belt, shouldn't many of these executives be able to go back to that same play
book and say, "This is what we need to do, we know how to work our way through a slow-down," and maybe most of them will come out at least
alive.
>> Rave: Yeah, the experience that people had in the last slump or slumps or however these have been around should help them to know how
to deal with a down-turn. This is a different kind of down-turn though, it's not a tech down-turn it's a full-on economic down-turn,
so the game is bigger, the down-turn is bigger, the customer base is drying up across the board. The most hard hit companies are the
ones who are basing their revenues on advertising or who are in industries, like I said, aren't tech-based but are being slammed right
like finance or real estate.
>> Charlie: Are there any major differences between the average Web 2.0 entrepreneur, if that's an accurate description, and the average
tech entrepreneur who's starting up back during the bubble?
>> Rave: You mean people who have experience versus people who don't?
>> Charlie: Yes
>> Rave: Well, that experience makes for a lot of difference. There also are some, actually there are some entrepreneurs right now
who cashed out before the last crash or even after it who made some money and who are now, took some time off and restarted their
careers as entrepreneurs of new businesses, and those are the companies that we're seeing right now.
>> Charlie: Such as Eli Musk [assumed spelling] of Tesla?
>> Rave: Exactly, now Eli is a very interesting position, he's in the automotive industry, which is a very high capital business, you
need a lot of money to start a car company, but guess what, he has a lot of money, he's raised a lot of money, and now he's saying in
light of the layoffs and the tough economics and the waiting for the federal grants that are going to, ya know, make it possible
for them to produce their 4 door, lower priced car, he's saying, "Look we're gonna do everything we can, we think we're gonna be fine,
if we're not I will do anything I can to keep this company afloat," which means he could stake the company. Now, these lower capital
Web 2.0 businesses being run by entrepreneurs who sold their business before and have a lot of money in the bank, maybe half of what
they used to but they still have money in the bank, they could stake their businesses if they want to.
>> Charlie: I think Eli's waiting for Barack Obama to be elected. Have you been able to pick up any vibe among the Web 2.0 rank and file
as to, do they have a preference Obama or John McCain?
>> Rave: Well, I --
>> Charlie: Not from a political point of view but for what it might suggest the future course of the economy.
>> Rave: That's a tough one because traditionally the venture capitalists have been Republican or Libertarian in my experience and
it doesn't mean the workers are. In with current start-ups right now, which are so low capital, ya know, so many Web 2.0 companies
are in such a different economic sphere you could start a company with 3 guys in a garage, it's politics are almost irrelevant to a lot
of them, they, ya know, if Google [inaudible] works, they got a business.
>> Charlie: As long as the money flows.
>> Rave: Yeah
>> Charlie: Thanks Rave. On behalf of CNET News, I'm Charlie Cooper.
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